LEGEND BEFORE THE FALL: THE DESCENT OF ALLY & GARGANO (PART 1/2)

Those words, from a long-running campaign for Federal Express Corp., helped make Ally & Gargano famous. And if you go strictly by this year's headlines, the slogan seems prescient in describing the 33-year-old agency's decline.

Since last December, Ally has lost nearly $100 million in billings, all but a couple of its clients and almost all its employees.

Although the agency seems to have hit the skids in a hurry, ex-employees and others familiar with the shop say its recent problems are only the latest-and a largely inevitable-chapter in a long, steady decline.

For those who need to put a birth date on the descent, most Ally watchers would set it at 1988. And for those who need to find one person on whom to pin most of the blame, that candidate would be Chairman-CEO Bill Luceno.

From interviews with former Ally employees, three factors emerge as the big blows that laid the agency low.

First, Ally has been operating under a cloud since a leveraged buyout in '88. The debt from the LBO put immense financial pressure on the agency and gave it a narrow margin for error.

Second, since 1991 the agency's creative work hasn't lived up to its creative reputation.

Finally, Mr. Luceno was the wrong man to fill a very tough position.

Today, that tough position appears to be one of the only ones left at Ally. Fewer than 10 people, some of them temps, occupy the agency's Manhattan offices, former employees say. And of the four clients that Mr. Luceno said the agency handled, when Advertising Age asked him a month ago, today only two remain-the World Gold Council and Cushman & Wakefield, each billing less than $5 million.

Ally recently completed a major national campaign for Aamco Transmissions, concluding an 18-month creative-only project. Aamco plans to use the campaign for three years and said it has no plans to assign more work to Ally, though it's happy with the agency's creative.

Mr. Luceno hopes to reorganize Ally as a small, retail-focused shop but acknowledges that won't be easy.

But then, nothing has come easy for Mr. Luceno since he joined Ally as part-owner and CEO in 1988, a year after leaving his post as president of Wells Rich Greene to pursue his dream of owning an agency. He had been at WRG for 14 years in account management, working with clients including Alka-Seltzer, Procter & Gamble Co. and Pan American World Airways.

In '88, Mr. Luceno and Wesray Capital Corp. acquired Ally from Marketing Corp. of America. Mr. Luceno took over from MCA Chairman James McManus as Ally CEO.

"You have to look at how it was bought and the price that was paid," said Abe Jones, whose New York investment banking company, Ad Media, handled the recent sales of Ally subsidiaries for the agency's lender, Daiwa Bank. "It was a highly leveraged transaction .....and a very high price, at about one times revenue [$28 million]. Having that kind of debt is a very difficult place for an agency to be."

Almost the entire purchase price was borrowed, said Mr. Jones and another source close to the agency, with Wesray, MCA and Lloyds Bank holding most of the notes. (Ally later refinanced the bank notes with Daiwa, and a Wesray spin-off named Vestar assumed Wesray's position.)

The debt wasn't instantly crippling, but it meant Ally could ill afford substantial losses in billings. It also meant Mr. Luceno had to keep a tight fist on salaries, said one former employee.

When asked how big a burden debt was for his agency, Mr. Luceno simply acknowledged that debt makes running any business harder.

The pressure on salaries became important when agency co-founder Amil Gargano and three other top creatives at the agency left in 1991 to form a separate shop, Amil Gargano & Partners. The departure of the four-Mr. Gargano, Michael Tesch, Barry Greenspon and David Schneider-drained an enormous amount of talent out of the agency, talent that Mr. Luceno ultimately was unable to replace.

Mr. Gargano's departure probably was the most significant. Though he had relinquished CEO duties back in 1987, his presence gave Ally a strong link to its past.

"It was one of the great agencies of the '70s and '80s," said Brett Shevack, CEO of Partners & Shevack, New York.

Ally created some of the most memorable advertising from those decades, including mostly humorous work for FedEx, MCI Communications Corp. and Dunkin' Donuts.

Many of the ad industry's great creative names had trained under Mr. Gargano and Carl Ally, who had left the agency in 1984. They included Ed McCabe, Helayne Spivak, Martin Puris and Ralph Ammirati.

Advertising Age recognized Ally as 1981 Ad Agency of the Year, citing a 61% increase in billings that year and "some of the freshest, most arresting-and effective-advertising the industry has seen." Ad Age specifically cited such creations as the FedEx speed talker ("I-know-it's-perfect-Peter-that's-why-I-picked-Pittsburgh."), the early-rising Dunkin' Donuts baker ("Gotta make the doughnuts. Gotta make the doughnuts..... I bet the guys who make supermarket doughnuts are still in bed.") and the split-screen ads showing a rapidly clicking Bell meter and a much slower MCI meter.

The first big test in the post-Amil Gargano era came in '92, when Ally made the finals of the Mercedes-Benz of North America review. Ally had a long and storied history of auto accounts, having done memorable work for Volvo, Fiat and Saab. But this time, Ally was beaten by Scali, McCabe, Sloves, and employees knew it was a turning point.

"They were always on the long list," said Arthur Anderson, principal of Morgan, Anderson & Co., which helps clients conduct agency reviews. "The reason they got on was their creative legacy. But over time, the portfolio didn't represent the greatness that was in the brand name. Less and less, they made our short list."

When another car account, BMW of North America's $80 million in work, came up for review in 1993, Ally didn't make the finals, despite knowing the product through its work for the New York metro dealers association, BMW Tristate.

The year wasn't a total disaster, however, as Ally won General Nutrition Centers' media-only, $30 million account in September.

There were problems closer to home, though, as relationships with existing clients began to sour. Celestial Seasonings moved its $6 million account in the fall. A harder blow followed, with Pfizer removing $15 million to $20 million in Ben-Gay and Plax advertising.

Former Ally staffers lay much of the blame at the feet of Mr. Luceno. Interviews with eight former employees, most of whom have left in the past eight months, revealed that the CEO wasn't perceived as a manager with good people skills-he was not the kind of adman who could save a crumbling account.

Bob Taber, who left his job as senior VP-management director on the Dunkin' Donuts account in